Nucor 2011 Annual Report Download - page 35

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GOODWILL
Goodwill is tested annually for impairment and whenever events or circumstances change that would make it more likely than not
that an impairment may have occurred. We perform our annual impairment analysis as of the first day of the fourth quarter each
year. The evaluation of impairment involves comparing the current estimated fair value of each reporting unit with the recorded
value, including goodwill.
When appropriate, Nucor performs a qualitative assessment to determine whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount. For certain reporting units it is necessary to perform a quantitative analysis. In
these instances, a discounted cash flow model is used to determine the current estimated fair value of these reporting units. Key
assumptions used to determine the fair value of each reporting unit as part of our annual testing (and any required interim testing)
include: (a) expected cash flow for the five-year period following the testing date (including market share, sales volumes and
prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate based
on the growth prospects of the reporting unit; (c) a discount rate based on management’s best estimate of the after-tax weighted
average cost of capital; and (d) a probability-weighted scenario approach by which varying cash flows are assigned to certain
scenarios based on the likelihood of occurrence. Management considers historical and anticipated future results, general economic
and market conditions, the impact of planned business and operational strategies and all available information at the time the fair
values of its reporting units are estimated.
Our fourth quarter 2011 annual goodwill impairment analysis did not result in an impairment charge. The excess of fair value over
carrying value for the majority of our reporting units improved from 2010 levels. Accordingly, management does not currently
believe that future impairment of these reporting units is probable. However, the performance of certain businesses that comprise
our reporting units requires continued improvement. A 50 basis point increase in the discount rate, a critical assumption in which
a minor change can have a significant impact on the estimated fair value, would not result in an impairment charge.
Nucor will continue to monitor operating results within all reporting units throughout the upcoming year in an effort to determine
if events and circumstances warrant further interim impairment testing. Otherwise, all reporting units will again be subject to
the required annual impairment test during our fourth quarter of 2012. Changes in the judgments and estimates underlying our
analysis of goodwill for possible impairment, including expected future operating cash flows and discount rate, could decrease the
estimated fair value of our reporting units in the future and could result in an impairment of goodwill.
EQUITY METHOD INVESTMENTS
Investments in joint ventures in which Nucor shares control over the financial and operating decisions but in which Nucor is not the
primary beneficiary are accounted for under the equity method. Each of the Company’s equity method investments is subject to a
review for impairment if, and when, circumstances indicate that the fair value of our investment could be less than carrying value. If the
results of the review indicate a decline in the carrying value of our investment and that decline is other than temporary, the Company
would write down the investment to its estimated fair value. An other than temporary decline in carrying value is determined to have
occurred when, in management’s judgment, a decline in fair value below carrying value is of such length of time and/or severity that it
is considered permanent.
As a result of the significant decline in the global demand for steel and the losses incurred in the investment during 2010 and 2011,
we evaluated our investment in Duferdofin Nucor during the fourth quarter of 2011. Nucor determined the estimated fair value of our
investment in Duferdofin Nucor using a discounted cash flow model based on a weighted-average of multiple discounted cash flow
scenarios. The discounted cash flow scenarios require the use of unobservable inputs, including assumptions of projected revenues
(including product volume, product mix and average selling prices), raw material costs and other production expenses, capital
spending and other costs, as well as a discount rate. Estimates of projected revenues, expenses, capital spending and other costs are
developed by Duferdofin Nucor and Nucor using historical data and available market data. Based on our analysis, the estimated fair
value of our investment in Duferdofin Nucor approximated carrying value as of December 31, 2011. As a result, we did not have an
other-than-temporary impairment of our investment in Duferdofin Nucor in 2011.
We will continue to monitor trends in the global demand for steel, particularly within the European market in which Duferdofin Nucor
operates, as well as other general economic and currency matters. It is reasonably possible that based on actual performance in the
near term the estimates used in our valuation as of December 31, 2011 could change and result in an impairment of our investment.
Changes in management estimates to the unobservable inputs would change the valuation of the investment. The estimates for the
projected revenue and discount rate are the assumptions that most significantly affect the fair value determination.